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Cricket World Cup and festive season led Q3 beat   

Zomato (ZOMATO IN) reported an in-line Q3 as regards food delivery gross order value (GOV), up 27% YoY, led by the positive impact from Cricket World Cup (CWC) and festive season (refer ‘Consumption to wax with Cricket World Cup dated 18 September 2023). ZOMATO was the biggest beneficiary of CWC 2023, as global QSR chains saw an SSSG dip of 7% YoY (average of KFC, PH, McD and Dominos). GOV growth may continue in 16-18% range, medium term, on: 1) increased users and 2) higher frequency due to Gold programme. Adjusted revenue growth for the food business was healthy at 29.4% YoY, on spiked take rate (up 70bps YoY to 20.1%), given: 1) higher ad revenue and 2) raised platform fee (to INR 3 by August end; full impact in Q3).

Blinkit – Yet another surprise in profitability 

Revenue from Blinkit too surged 114% YoY, led by positive impact from festive season and CWC 2023. Growth was led more by increased transacting customers (74% YoY). AOV too grew 14.8% YoY. GOV per dark store surged 39.3% YoY due to change in product mix, which likely led to more throughput per store. Contribution margin was positive for second consecutive quarter, as it almost doubled QoQ to 2.4% (as a percentage of GOV), despite healthy new store addition (24.6% YoY). Levers such as ad revenue and product mix contributed to higher margin. ZOMATO is confident of ample room (double up store count) to grow its quick commerce business in top eight cities due to increased penetration opportunity. Top eight cities accounted for 90% of GOV for Blinkit. Hyperpure too saw healthy growth of 104% YoY, with adjusted EBITDA losses same at INR 340mn.

Valuations: Downgrade to Accumulate; TP raised to INR 165

ZOMATO’s food segment is trading at fair 42x FY26E EV/EBITDA. There seems a potential for adjusted EBITDA to grow 23% YoY post FY26E too, which may drive share price performance, medium-to-long term. For quick commerce segment, path to profitability has intensified at a faster clip, but 1) the scale of business (beyond metros) and 2) potential competitive intensity in future are key monitorables. We downgrade ZOMATO to Accumulate from Buy (stock has moved up by 50% in the last six months, largely factoring healthy growth and profitability) with raised SOTP-TP of INR 165 from INR 150, as we have raised the target one-year fwd. EV/EBITDA of food delivery to 50x (from 47x). Good execution on growth and profitability in the food/quick commerce businesses are key monitorables. We have assigned one-year fwd. EV/sales of 6x (unchanged) and 2.5x (unchanged) to Blinkit and Hyperpure, respectively.

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